Correlation Between Watsco and Core Main

Can any of the company-specific risk be diversified away by investing in both Watsco and Core Main at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Watsco and Core Main into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Watsco Inc and Core Main, you can compare the effects of market volatilities on Watsco and Core Main and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Watsco with a short position of Core Main. Check out your portfolio center. Please also check ongoing floating volatility patterns of Watsco and Core Main.

Diversification Opportunities for Watsco and Core Main

-0.55

Correlation Coefficient

Watsco  Core Main

Excellent diversification

The 3 months correlation between Watsco and Core is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Watsco Inc and Core Main in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Core Main and Watsco is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Watsco Inc are associated (or correlated) with Core Main. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Core Main has no effect on the direction of Watsco i.e., Watsco and Core Main go up and down completely randomly.

Pair Corralation between Watsco and Core Main

Assuming the 90 days horizon Watsco Inc is expected to under-perform the Core Main. In addition to that, Watsco is 1.36 times more volatile than Core Main. It trades about -0.02 of its total potential returns per unit of risk. Core Main is currently generating about -0.02 per unit of volatility. If you would invest  5,077  in Core Main on December 28, 2024 and sell it today you would lose (127.00) from holding Core Main or give up 2.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Watsco Inc  vs.  Core Main

Watsco Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Watsco Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Watsco is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Core Main

Risk-Adjusted Performance

Very Weak

Over the last 90 days Core Main has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Core Main is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Watsco and Core Main

The main advantage of trading using opposite Watsco and Core Main positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Watsco position performs unexpectedly, Core Main can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Core Main will offset losses from the drop in Core Main's long position.

The idea behind Watsco Inc and Core Main pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Stocks Directory module to find actively traded stocks across global markets.